3) Accounts Payable Chapter 7 Exercise 3 3. Variances for direct materials and d

Question

3) Accounts Payable

Chapter 7 Exercise 3

3. Variances for direct materials and direct labor

Banner Company manufactures flags of various countries. Each flag has a standard of eight square feet of fabric and three hours of direct labor time. Information about recent production activity follows.

Actual cost of fabric: $4.50 per square foot

Fabric consumed: 32,080 square feet

Standard price per square foot of fabric: $4.25

Standard direct labor rate: $10.00 per hour

Actual direct labor rate: $10.20 per hour

Actual labor hours worked: 11,940

Actual production completed: 4,000 flags

a. Compute the materials price variance and the materials quantity variance.

b. Compute the labor rate variance and the labor efficiency variance.

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Direct Materials Price Variance = 32080*(4.50 - 4.25) = 8020 U

Direct Materials Quantity Variance = 4.25*(32080 - 8*4000) = 340 (U)

Part B:

Direct Labor Rate Variance = 11940*(10.20 - 10) = 2388 U

Direct Labor Efficiency Variance = 10*(11940 - 4000*3) = 600 F

Thanks.

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